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UBS Investment Research
Bharti Airtel Ltd.
Leading India’s mobile revolution
Event – Resurgence of pricing power has led to the stock outperformance
Bharti has outperformed Nifty by 27% ytd. More specifically the outperformance
has been more pronounced post the tariff hike (21 July11). We believe that Bharti
stock is likely to outperform in the coming months given resurgence of pricing
power and improving regulatory outlook.
Impact – Bharti to emerge as one of the beneficiaries of improving outlook
Mobile tariffs in India are rising and Bharti with a +30% revenue market share of
the Indian mobile revenues is likely to emerge as a key beneficiary. We expect the
full effect of rising tariffs to be felt in the next 12 months.
Action – Raise our price target to Rs530 (vs. Rs500 earlier)
Our EBITDA estimates for FY12E/13E/14E have increased by 2%/5%/3% as we
factor in higher realizations. However, our EPS estimates for FY12E/13E/14E have
reduced by 16%/9%/6% as we factor in higher tax rate (25% vs. 16-18% earlier)
and D&A. Also, in our SoTP valuation we are now using uniform license fees of
8.5% (vs. 6% earlier) to incorporate savings from license fee reduction.
Valuation: Maintain Buy with a SoTP based PT of Rs530
We value India/SA operations at Rs453, Indus & Bharti Infratel at Rs99, Africa
operations at Rs10. We also incorporate a charge of Rs32 towards one time
spectrum fees, spectrum renewal fees and savings from uniform license fees. We
have used a WACC of 10.7% in our DCF to value Bharti’s India/SA operations
Bharti Airtel Ltd. Investment Case
Positive changes are happening in the Indian mobile sector related to improving
pricing environment and regulatory outlook. We expect Bharti to maintain its
dominant position and benefit from sector consolidation (which could happen
over the next 18-24 months). Bharti stock offers excellent potential to generate
alpha in the long run given high quality management team, resumption of
growth, reasonable valuations, catalysts in the form of improving regulatory and
competitive dynamics. India is at in inflexion point of mobile data growth post
3G launch and we expect the company to benefit from uptake of data usage.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Bharti Airtel Ltd.
Leading India’s mobile revolution
Event – Resurgence of pricing power has led to the stock outperformance
Bharti has outperformed Nifty by 27% ytd. More specifically the outperformance
has been more pronounced post the tariff hike (21 July11). We believe that Bharti
stock is likely to outperform in the coming months given resurgence of pricing
power and improving regulatory outlook.
Impact – Bharti to emerge as one of the beneficiaries of improving outlook
Mobile tariffs in India are rising and Bharti with a +30% revenue market share of
the Indian mobile revenues is likely to emerge as a key beneficiary. We expect the
full effect of rising tariffs to be felt in the next 12 months.
Action – Raise our price target to Rs530 (vs. Rs500 earlier)
Our EBITDA estimates for FY12E/13E/14E have increased by 2%/5%/3% as we
factor in higher realizations. However, our EPS estimates for FY12E/13E/14E have
reduced by 16%/9%/6% as we factor in higher tax rate (25% vs. 16-18% earlier)
and D&A. Also, in our SoTP valuation we are now using uniform license fees of
8.5% (vs. 6% earlier) to incorporate savings from license fee reduction.
Valuation: Maintain Buy with a SoTP based PT of Rs530
We value India/SA operations at Rs453, Indus & Bharti Infratel at Rs99, Africa
operations at Rs10. We also incorporate a charge of Rs32 towards one time
spectrum fees, spectrum renewal fees and savings from uniform license fees. We
have used a WACC of 10.7% in our DCF to value Bharti’s India/SA operations
Bharti Airtel Ltd. Investment Case
Positive changes are happening in the Indian mobile sector related to improving
pricing environment and regulatory outlook. We expect Bharti to maintain its
dominant position and benefit from sector consolidation (which could happen
over the next 18-24 months). Bharti stock offers excellent potential to generate
alpha in the long run given high quality management team, resumption of
growth, reasonable valuations, catalysts in the form of improving regulatory and
competitive dynamics. India is at in inflexion point of mobile data growth post
3G launch and we expect the company to benefit from uptake of data usage.
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